Thursday, January 25, 2018

Thomas Lindstrom, Chicago Futures Trader, Pleads Guilty to Causing More Than $13 Million in Losses from Fraudulent Trading Scheme

A Chicago futures trader admitted in federal court that he caused more than $13 million in losses through a fraudulent trading scheme that resulted in the collapse of his firm.

Thomas Lindstrom used deep out-of-the-money options on ten-year Treasury Note futures to make it fraudulently appear that his trading at Chicago-based Rock Capital Markets LLC was profitable, thereby obtaining greater financial compensation for himself. Over a six-month period in 2014 and 2015, Lindstrom obtained compensation of $285,000, while his fraud scheme caused a loss of more than $13.7 million and led to the collapse of Rock Capital.

Lindstrom, 55, of Winnetka, pleaded guilty to one count of wire fraud. U.S. District Judge Harry D. Leinenweber set sentencing for June 19, 2018. Lindstrom acknowledged in the plea agreement that at the time of sentencing, the Court will order him to make full restitution in the amount of $13,776,518.

The guilty plea was announced by John R. Lausch, Jr., United States Attorney for the Northern District of Illinois; and Jeffrey S. Sallet, Special Agent-in-Charge of the Chicago office of the Federal Bureau of Investigation. The government is represented by Assistant U.S. Attorney Sunil Harjani and Special Assistant U.S. Attorney Lindsey Evans of the Securities and Commodities Fraud Section of the U.S. Attorney’s Office in Chicago. The Commodity Futures Trading Commission, which filed a civil enforcement lawsuit against Lindstrom, provided assistance.

A tick is the minimum price increment at which an option on a futures contract could trade. Prior to 2016, the Chicago Board of Trade set the minimum settlement value of all options on futures contracts at one tick, even if the actual value of the option was considerably less. For options on ten-year Treasury Note futures contracts, one tick was approximately $15.63.

Lindstrom admitted in a plea agreement that he acquired hundreds of thousands of deep out-of-the-money options on ten-year Treasury Note futures, and on certain occasions he used spread transactions to pay effectively less than one tick apiece. Lindstrom made the trades knowing that these options would likely expire worthless – resulting in losses – but would temporarily appear to have substantial value in his trading account because the minimum settlement value was one tick.

Lindstrom concealed the scheme by telling Rock Capital’s owner that the options were profitable, when in reality Lindstrom’s trading was causing substantial losses.

Wire fraud is punishable by a maximum sentence of 20 years in prison.

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